What is Bitcoin?

Bitcoin is a digital crypto-currency with no single point of failure due to its decentralized peer-to-peer architecture. The source code is publicly available and changes to the reference Bitcoin client are made via concensus within the community. Advantages of Bitcoin include irreversible transactions (i.e. no possibility of chargebacks as with credit cards),
pseudo-anonymous, limited and fixed inflation, near instant transactions, multi-platform, no double-spend and little to no barriers to entry and more. It was created by an anonymous person known as Satoshi Nakamoto. Find out more at WeUseCoins.com.

Bitcoin, Ethereum And The Parallel World Of Crypto-FinanceForbesThe bitcoin logo is displayed on an automated teller machine (ATM) at the Coin Trader bitcoin retail store in Tokyo, Japan, on Wednesday, Aug. 30, 2017. Stock of Bitcoin, the best-known digital currency, has surged 358 percent this year. While ...

Gold’s long, storied history as a prized precious metal dates back to ancient times. It garnered official status in the 19th century, when a number of European countries adopted the gold standard. Over the centuries, gold has achieved the distinction of being one of the rarest and in-demand assets on earth, leading to its reputation as a prized source and store of value.

Until more recent times, gold was used as money as well as the backing for other currencies. The term “gold standard” refers to a system where the value of a nation’s currency is tied to the quantity of gold it holds in reserve. But this system was abandoned over time, particularly with the U.S. decision to suspend the direct conversion of dollars to gold in 1971.

Due to its intrinsic value, gold remains in demand, and prices tend to stay relatively stable. In fact, historically, whenever there is a stock market crash, gold prices experience an upward climb.

Today, due to concerns about the devaluation of fiat currency, and given gold’s track record as an investment “safe haven,” investors are once again turning to gold. People are reassured by hard assets during times of economic uncertainty, meaning gold can be used not only as a leverage against inflation, but also as a hedge against hard economic times.

Minting a New Normal for Gold

As gold continues to see renewed interest due to its stable global standing, new questions are emerging in terms of how the cryptocurrency market can benefits from gold’s attributes.

Enter GoldMint, a blockchain-based platform which operates a new, gold-backed crypto-asset called “GOLD” — the value of which is based on physical gold. This decentralized platform assists gold owners in trades, loans and investments of gold as a means of realizing profitable returns. GoldMint facilitates this by purchasing, selling and repurchasing GOLD at the current market price for physical gold.

The company behind the innovative platform, which was launched in the beginning of 2017 and is headquartered in Singapore, utilizes exchange-traded funds (ETF) or physical gold (of 999 quality) as its security: GoldMint’s gold reserves equal or exceed its mined amounts of GOLD.

GoldMint co-founder Dmitry Pluschevsky — who, despite being only 36 years old — has been in the IT business for 20 years, and has developed and managed various types of other projects over the years.

“Many people get into difficult situations and getting a small loan is sometimes the only way to survive hard times,” Pluschevsky said of the importance of the platform. “But for various reasons, these people cannot go to the banks because they simply will not get a loan. They then might go to various microfinance agencies or mortgage lending networks, again without any luck. GoldMint gives those who have been cast out by the system the chance to get back on their feet. We believe that the technology that GoldMint is introducing to this market is a revolution, similar to the invention of the phone.”

GoldMint’s initial coin offering (ICO) launched on September 20, 2017. Investors can purchase MNT pre-launch tokens, called MNTP, for $7. As of late last week, the project had already raised $4 million.

Note: Trading and investing in digital assets is speculative. Based on the shifting business and regulatory environment of such a new industry, this content should not be considered investment or legal advice.

South African Retailers Catching Bitcoin BugCoinTelegraphA few days after Pick n Pay, one of South Africa's largest grocery and food stores, announced it would be testing out Bitcoin in one of its stores, there are rumblings of other retailers wanting to join the bandwagon. OneDayOnly, a major eCommerce ...

What Happens If China Bans Bitcoin Mining: 3 ScenariosInvestopediaMiners involved in the process must harness immense computing power to unravel these math problems that exhibit an increasing degree of difficulty in relation to the amount of Bitcoin already mined. In this specific case, a finite amount of coins ...

What Happens to Cryptocurrency When You Die?FortuneA young man died suddenly in Colorado this year, leaving his family the burden of sorting out his estate. Little did they know their loved one had been investing in Bitcoin, the digital currency that cost as little as $13 in 2013 and recently climbed ...

Why China's Ban On Bitcoin May Be TemporaryForbesChina's ban on Bitcoin and other cryptocurrencies may be temporary, to appease international agencies and hardcore communist members ahead of the upcoming Communist Party convention. China's big government and banks cannot tolerate Bitcoin.

Carbon credits trading (also known as “cap and trade”) as a means to help mitigate the effects of global climate change has long been advocated by environmentalists fighting one of the most intransigent environmental challenges of the 21st century.

CarbonX Personal Carbon Trading Inc. is principally a Tapscott family enterprise, with CEO and founder William (Bill) Tapscott, co-founder and CMO Jane Ricciardelli, chair of the board of directors Don Tapscott, and director and board member Alex Tapscott.

Bill Tapscott is a software engineer who has founded and co-founded a number of tech startups including IntelliOne, a cell phone geo-location and traffic data processing company; Maptuit, a navigation and optimization software company in transportation logistics; and Mountain Lake Software, a custom software development company with a strong financial services practice.

Tapscott toldBitcoin Magazine:

“My interest in carbon trading and clean technologies was piqued by being on the Investment Committee of the Toronto Atmospheric Fund, a City of Toronto venture fund with a mandate to develop greenhouse gas reduction projects and companies.

“CarbonXwill engage millions of people in fighting climate change by materially rewarding responsible behaviors toward the personal consumption of carbon. CarbonX will achieve this by investing in carbon reduction projects and re-casting generated offsets as ERC20 tokens on an Ethereum Blockchain.

“CarbonX’s ultimate goal is to become the global exchange for peer-to-peer personal carbon trading.”

“... climate change is arguably the world’s most daunting challenge. Virtually every scientist now agrees that the debate is over. Rising average surface temperatures combined with rapidly expanding deserts, melting Arctic sea ice caps and ocean acidification now provide unequivocal evidence that human activities are fundamentally altering the Earth’s climate.”

ConsenSys was one of the first startups to build practical applications for the Ethereum blockchain. Their mission is to create simplified and automated decentralized applications (dApps) to facilitate peer-to-peer transactions and exchanges, principally on the Ethereum blockchain.

“As one of the fastest growing companies working on Ethereum, a platform that is poised to reformat how the world organizes itself, ConsenSys is committed to enabling technologies to be built that will facilitate attention to externalities like pollution and critical new foundations like sustainability.

“CarbonX has the potential to incentivize behavior that contributes to environmental sustainability, and is an excellent example of Ethereum-based technologies poised to make positive change,” added Lubin.

The CarbonX Token CxT

The CarbonX initiative will buy carbon credits from environmentally sustainable practices like ridesharing and will invest in carbon reduction projects like tree planting and convert this value to Ethereum ERC20 tokens known as CxT tokens.

CarbonX will be announcing a formal token launch in the near future. CxT tokens will be distributed through an open-loop-style loyalty rewards program. The CxTs will then be tradeable on the CarbonX platform and be able to be exchanged for carbon-friendly goods and services, other reward program points or other digital currencies.

For verification, CarbonX will use industry-standard carbon offsets like the REDD and VCS offsets (for example, to apply to ridesharing) and will convert these into CxT tokens.

Investments in carbon reduction projects that will generate offsets will use government protocols, such as those developed by the Ontario provincial government, for example.

“The CxTs will be awarded by enterprises who encourage ridesharing, and brands/retailers who wish to feature products that are carbon-friendly. We will provide guidelines, and consumers/users will be able to track overall performance. In the example of rideshare, we plan to work with companies like Luum and their clients to incent carbon-friendly behaviors. There are many ways we can boost awareness and responsibility for personal action in the fight,” explained Tapscott.

“Blockchain technology has the potential to further expand the applications of market-based mechanisms to help solve environmental concerns. I am pleased to support CarbonX as another positive step towards transparency, accountability and lower transaction costs.”

Imagine a country where you could live free without a central government telling you who to be, what to do and how to act. Roger Ver does, and he is inviting people to join him on a ground level in plans for creating a libertarian utopia.

The early Bitcoin investor andvoluntaryist (someone who advocates nonviolent strategies to achieve a free society) took the stage last week at Nexus Conference, a three-day event in Aspen hosted by the cryptocurrency platform Nexus Earth, to announceFree Society, a project aimed at raising money to organize the venture.

Ver, who is founding the project along with Olivier Janssens, another early Bitcoin investor, stated he has already raised $100 million, but hopes to raise plenty more.

As Ver explained to a surprised audience, who settled into their seats expecting a talk about Bitcoin Cash, he is currently negotiating with different countries to purchase sovereign land with the hope that fellow libertarians will begin populating the area in one to two years.

Bitcoin Magazinecaught up with Ver in Aspen to learn more about his ambitious plans for a free country.

Non-Country

Inspiration for the libertarian country or “non country,” as Ver called it, comes from David Friedman’s The Machinery of Freedom, a book that explores the idea of a society organized by private property, individual rights and voluntary cooperation.

Ver’s dream is to create a free society where people voluntarily abide by a set of rules they sign off on when purchasing a land title. “It will be a new experiment where it is the first time it’s been tried in the world,” he said.

The Bitcoin enthusiast hopes to raise more money for more land. “I think very realistically, we can raise half a billion dollars and maybe a billion dollars. If we have a billion dollars, we will have a lot more capital to play with for a bigger piece of land,” he said.

Right now, the seed funding comes from early Bitcoin and Ethereum adopters. “I’m one of them,” he said. He would not disclose who the others are, saying if they wanted to come forward, that was up to them.

But the general idea was to open the door to the public. “We were planning to have an ICO, but the regulators have kind of gotten in the way of that at the moment. But basically, we are working out the details as to how people can participate directly,” he said.

Ver added that this type of project is only possible due to cryptocurrency. “Thanks to cryptocurrencies, now there is a way to fundraise for people all over the world who are interested in this. Myself and my other friends all have a fair amount of capital now because of cryptocurrency. Dying with a pile of money isn’t any fun, so let’s make the world a better place,” he said.

Search for Land

But before he can build out his libertarian paradise, Ver and his team need to find some land to buy. He doesn’t see that as being an issue though.

“We have approached a number of different governments already, and we have actually been really surprised at how eager they are. Governments love money, and so, we will have to negotiate the final details.”

Of course, they have criteria. “We want to have a seaport, we want to be geographically close to other economic powerhouses so we have trading partners. We don’t want to be out in the middle of nowhere,” he said, adding that something close to Europe or South America or parts of Asia would be best.

Once they buy the land, the next step is putting the infrastructure in place. “When we auction off the land, we suspect a lot of the people who would be most interested in buying land will be development companies that will want to develop the land into big buildings,” he said.

Governance

The concept of libertarianism revolves around the idea that order evolves spontaneously, rather than through some central authority pushing out arbitrary laws.

Still, for many, it can be hard to imagine how that might work exactly. How will the country resolve disputes? What if someone gets out of line?

Right now, decisions are easy because so far only a handful of people are involved, said Ver. Otherwise, instead of laws, there will be guidelines similar to what someone might agree to before joining a condominium homeowner’s association.

“Everybody can do whatever they want within the guidelines, and they will be agreeing to the guidelines by the time they purchase in. There will not be a government. It will all be private institutions and private organizations,” he said.

The idea is to purchase land from a government that will allow sovereign behavior. “We are guessing that the governments will still try saying things like, you can’t export drugs, you can’t have nuclear weapons and that sort of thing,” he said, adding, “I think the main answer is there isn’t going to be some centralized institution imposing these rules. That is what we are trying to escape.”

He also emphasized that there would be no taxes. People would need to raise money for roads and other projects on their own.

Who Will Live There?

What will people do for work in the country? “We suspect it will be a lot of people working on the internet,” said Ver, adding that he thinks 90 percent of the population will come from the blockchain and cryptocurrency space.

And will citizens be forced to use cryptocurrency? “People will be free to use whatever form of money they want,” said Ver. But whatever the case, he made it clear, the time to act was now. “Life is short,” he said. “We want to move quickly.”

Come November, the remaining signatories of the “New York Agreement” (NYA) plan to deploy the “SegWit2X” hard fork to double Bitcoin’s block weight limit, allowing for up to 8 megabytes of block space. Since not everyone supports this hard fork, this could well “split” the Bitcoin network into two incompatible blockchains and currencies, not unlike Bitcoin and Bitcoin Cash (Bcash) did two months ago.

But this NYA hard fork is controversial and not only because it lacks consensus. It’s also controversial because of design choices made by the development team behind BTC1, the software client associated with the New York Agreement. Perhaps most importantly, this development team, led by Bloq CEO Jeff Garzik, has so far refused to implement replay protection, a measure that Bcash did take. Partly for this reason, at least one NYA signatory — Wayniloans — has backed out of the agreement.

So what is replay protection, why should BTC1 implement it … and why doesn’t it?

What Is Replay Protection? (And What Are Replay Attacks?)

Bitcoin could see another “split” by November. (It’s arguably more accurate to consider the “splitting” nodes and miners as an entirely new cryptocurrency with a new blockchain and token — not an actual split of Bitcoin itself.) For the purpose of this article, we’ll refer to the blockchain and currency that follows the current Bitcoin protocol as “Legacy Bitcoin” and “BTC.” The blockchain and currency that follows the New York Agreement hard fork is referred to as “SegWit2X” and “B2X.”

If this split happens, the two blockchains will be identical. All past transactions and (therefore) “balances” are copied from the Legacy Bitcoin blockchain onto the SegWit2X blockchain. Everyone who owns BTC will own a corresponding amount of B2X.

Without replay protection, new transactions will be equally valid on both chains as well. This means that these transactions can be copied or “replayed,” from one chain to the other — in other words, for them to happen on both. This is called a “replay attack.”

So, let’s say Alice holds BTC at the time of split, which means she also owns B2X after the split. Then, after the split, she wants to send BTC to Bob. So, she creates a transaction that spends BTC from one of her Legacy Bitcoin addresses to one of Bob’s Legacy Bitcoin addresses. She then transmits this transaction over the Legacy Bitcoin network for a Legacy Bitcoin miner to pick it up and include in a Legacy Bitcoin block. The payment is confirmed; all is good.

But this very same transaction is perfectly valid on the SegWit2X blockchain. Anyone — including Bob — can take Alice's Legacy Bitcoin transaction and also transmit it over the SegWit2X network for a miner to include in a SegWit2X block. (This can even happen by accident quite easily.) If this payment is also confirmed, Alice has inadvertently sent Bob not only BTC but also an equal amount of B2X.

And, of course, all of this is true in reverse as well. If Alice sends B2X to Bob, she might accidentally send him BTC as well. A lack of replay protection, therefore, is a problem for users of both chains. No one wants to accidentally send any money — not even if it was “free money.”

Technically, there are ways to “split” coins on both chains to ensure they can only be spent on one chain. This would, for example, require newly mined coins to be mixed into a transaction. Tiime-locks can also offer solutions. But this takes effort and is not easy, especially for average users — not to mention that many average users may not even know what’s going on in the first place.

To avoid this kind of hassle, at least one side of the split could add a protocol rule to ensure that new transactions are valid on one chain but not the other. This is called replay protection.

In case of a split, at least one side must implement replay protection. But many — Bitcoin Core developers and others — believe there’s only one viable option. It’s the splitting party — in this case BTC1 — that should do it.

There are several arguments for this.

First of all, it makes the most sense for BTC1 to implement replay protection because that requires the least effort. BTC1 is a new client that’s already implementing new protocol rules anyway, and it’s not very widely deployed yet. It would be relatively easy for BTC1 to include replay protection.

Meanwhile, it would not be sufficient for Bitcoin Core to implement replay protection on its own. While it is dominant, and even considered by some to be the protocol-defining reference implementation, Bitcoin Core is not the only Bitcoin implementation on the network. Bitcoin Knots, Bcoin, Libbitcoin and other alternative clients would all have to implement replay protection, too. (And that’s not even taking non-full node clients into account.)

But even more importantly, the reality of the current situation is that all deployed Bitcoin nodes do not have replay protection implemented. And logically, they can’t: Some of these nodes even predate the New York Agreement. So even if Bitcoin Core and other implementations were to implement replay protection in new releases of their software, it wouldn’t suffice. All users must then also update to this new version within about two months: a very short period of time for a network-wide upgrade.

If only some of the nodes on the network upgrade to these new releases, Bitcoin could actually split in three: Legacy Bitcoin, SegWit2X and “Replay Protected Bitcoin.” Needless to say, this three-way split would probably make the problem worse — not better.

Lastly, there is a bit of a philosophical argument. Anyone who wants to adopt new protocol rules, so the argument goes, has the responsibility to split off as safely as possible. This responsibility should not fall on those who want to keep using the existing protocol: They should be free to keep using the protocol as-is.

Many developers — including RSK founder Sergio Lerner who drafted the SegWit2Mb proposal on which SegWit2X is based — have argued that BTC1 should implement replay protection. In fact, many developers think that any hard fork, even a hard fork that appears entirely uncontroversial, should implement replay protection.

But so far, the BTC1 development team will only consider optional replay protection.

What’s Wrong With Optional Replay Protection?

Implementing optional replay protection, as proposed by former Bitcoin developer Gavin Andresen, for example, is currently on the table for BTC1.

In short, this type of optional replay protection would make certain specially crafted (“OP_RETURN”) Legacy Bitcoin transactions invalid on the SegWit2X chain. Anyone who’d want to split their coins could spend their BTC with such a transaction. These transactions should then confirm on the Legacy Bitcoin blockchain but not on the SegWit2X chain. This effectively splits the coins into different addresses (“outputs”) on both chains.

Such optional replay protection is probably better than nothing at all, but it’s still not a definitive solution.

One problem is that the Legacy Bitcoin blockchain would have to include all these OP_RETURN transactions. This would probably result in more transactions on the network and would require extra data for each transaction. All this data must be transmitted, verified and (at least temporarily) stored by all Legacy Bitcoin nodes. It presents a burden to the Legacy Bitcoin network.

But more importantly, it would probably still not be very easy to utilize this option. It might suffice for professional users — exchanges, wallet providers and other service providers — as well as tech-savvy individual users. But these are generally also the types of users that would be able to split their coins even without replay protection. Average users, if they are even aware of what’s going on, would probably find it much more difficult to utilize optional replay protection.

Optional replay protection, therefore, offers help to those who need it least and does little for those who need it most.

Does the NYA Preclude Replay Protection?

While it’s unclear what was (or is) discussed behind closed doors, the New York Agreement seems to be a very minimal agreement. Published on May 23, 2017, it really only consists of two concrete points:

Activate Segregated Witness at an 80 percent threshold, signaling at bit 4, and

Activate a 2 MB hard fork within six months.

With the first point completed through BIP91, the only remaining point is a hard fork to 2 megabytes before November 23. (This assumes that this hard fork wasn’t completed with the creation of Bitcoin Cash which is supported by a number of NYA signatories.)

Notably, a lot of details are not filled in. For example, the agreement does not even state that signatories must specifically run the BTC1 software: Any software implementation that implements a hard fork to 2 megabytes might do. This could even include a software implementation that implements replay protection. And, of course, nothing in the NYA stops BTC1 from implementing replay protection; some signatories may have even expected it.

Why Won’t BTC1 Implement Replay Protection?

There are really several reasons why BTC1 — both stated and speculated — might not want to add replay protection.

This framing and choice of words is disputed. If SegWit2X were to implement replay protection (and if SPV wallets don’t upgrade), these wallets could still send and receive transactions on Legacy Bitcoin perfectly fine. On top of that, they wouldn’t accidentally spend B2X when they don’t mean to.

Meanwhile, if the SegWit2X chain does not implement replay protection (and if SPV-wallets don’t upgrade), users may not be sure if their wallet is receiving or sending BTC transactions or B2X transactions or both. They also may not be sure if the balance in their wallet is a BTC balance or a B2X balance or both. And if hash power moves from one chain to another over time, these wallets could even switch from displaying BTC balances to B2X balances or the other way round without users knowing. (This problem could be solved, to some extent, through another workaround, but this is not yet implemented in either.)

The only (plausible) scenario where implementing replay protection would perhaps not break SPV wallets much worse is if there is no Legacy Bitcoin to speak of. Indeed, the New York Agreement very specifically intends to “upgrade” Bitcoin, rather than split off into a new coin as Bcash did. And based on miner signaling and statements of intent by several big Bitcoin companies, some NYA signatories claim that Legacy Bitcoin will not be able to survive at all.

Implementing replay protection is, therefore, sometimes considered an admission that SegWit2X will split off from (Legacy) Bitcoin into something new and will not be considered the upgraded version of Bitcoin.

But the assumption that Legacy Bitcoin won’t be able survive is a big one. In reality, miner signaling is effectively meaningless, while Bitcoin Core — the dominant Bitcoin implementation — will not adopt the hard fork. There is also a significant list of companies that have not stated that they support the hard fork, including two top-10 mining pools. Similarly, it’s not clear if many (individual) users will support SegWit2X either. The implementation of wipe-out protection (another safety measure) also suggests that even BTC1 developers aren’t so sure that there will only be one chain.

And perhaps even more importantly, it’s not clear that replay protection would affect any of this. If miners, developers, companies and users are to consider SegWit2X an upgrade of Bitcoin, they will probably do so with or without replay protection.

This is why it has also been suggested that BTC1 is rejecting replay protection for the specific purpose of being as disruptive as possible. If the Legacy Bitcoin chain is effectively made unusable, SegWit2X might stand the best chance of being recognized as “Bitcoin.”

For more information and debate on replay protection, also see the the relevant threads on the SegWit2X mailing list.

Vaultoro, a bitcoin-to-gold exchange, has secured funding from Finlab AG, a fintech company based in Frankfurt, Germany.

Vaultoro co-founder Joshua Scigala stated that the funding from Finlab will allow them to reach their goals faster. The first upgrade the company plans to implement will be a real-time gold-backed debit card. The card will allow the customers of the firm to hold their allocated gold — stored in a high-security Swiss bullion vault — while they can easily spend the funds anywhere Visa or Mastercard is accepted.

This latest funding announcement is in keeping with Vaultoro’s history of seeking funding and support from venture capitalists and established players in the space, rather than following the recent ICO trend.

“We decided against an ICO because coins that pay a dividend are not really legal yet, equity taken absolutely illegal[ly], and we didn’t want to confuse the product with a utility coin when we don’t need one. Also, we found that so many ICOs are scams and we didn’t want to be associated with this kind of hype. We have been solidly working on making Vaultoro a name people can trust, a brand with the highest principles.”

However, Scigala is not opposed to ICOs in general:

“I’m not saying ICOs are bad,” he added. “In fact, I love them, I think they are the future of fundraising because they enable anyone to invest in startups. In fact, we want to launch an ICO later to enable our users to profit from our success, but we want it well thought-out and fully legal for our investors. For this reason, we decided on a standard VC funding round that would not only bring us money but also strategic contacts that will help us grow as quick as possible.”

Gold on the Blockchain

According to Vaultoro, the latest financial crises have been a cause for concern for citizens around the world. People are worried about leaving their fiat funds in a bank account while earning low or no interest. The Vaultoro debit card will allow its customers to hold their funds in gold without the need for a bank.

“We see gold as a gateway to crypto. Many people don’t trust crypto, they don’t understand it, but they understand the 3000+ years of value that gold has held. We are currently building an easy-to-use euro/gold wallet so people can easily buy and save in gold. But here is the kicker. They will see a little button, spend your gold as SEPA, SWIFT, debit card or bitcoin. So, many people will want to see what that is,” he said.

A Secure Store of Value

“Our goal is to have real asset vaulting,” said Scigala. “We have always been a bitcoin-only business but we will bring some other promising digital assets on board. IOTA, ETHEREUM and DASH will be the first. We will also be adding silver, platinum and palladium. The wallet software will enable you to tell the card which asset you would like to spend from.”

The firm emphasized that all gold is allocated in the users’ name as their legal property so that even if Vaultoro were to experience a negative event, users’ gold holdings would be protected: even liquidators wouldn’t be able to touch the assets of the company’s clients.

“The most important thing about Vaultoro is that all physical assets are allocated to the user and are not on the company balance sheet. That means if anything happens to Vaultoro as a company, no one, not even liquidators, can touch our clients’ property because it has nothing to do with us. It’s the full property of our clients. We are figuring out if digital currencies can also be allocated under bailment laws,” Scigala said.

By allowing users to purchase gold for bitcoins and back, Vaultoro customers can benefit from the ease of BTC payments while investing in a stable asset. Unlike bitcoin or a lot of fiat currencies, gold has a very low volatility rate. Investors can invest and trade in cryptocurrencies; however, many of them dislike the volatility associated with them — especially when there is an event that drives the prices toward the bottom, like the recent Chinese regulations on bitcoin exchanges and ICOs.

“We are also working on a maker-taker trading fee model for the marketplace so people that place orders into the market don’t pay as much fee[s] as people taking an order from the order book. We hope to lift liquidity drastically.”

To a complete outsider, the worlds of art and cryptocurrency do not appear to be linked. But for content creators of all kinds, blockchain technology provides an ideal solution to preserve intellectual property, create demand and increase value for digital content.

The digital revolution is often blamed for making life harder than ever for artists. We are always hearing stories of artists realizing their work has been ripped off by a major brand or that they are not being paid or credited for the content they create.

However, thanks to blockchains, ownership rights can be restored in favor of artists. The very digital landscape that proves so difficult for artists could well increase the possibility of profits for artists online.

Physical art was one of the first big applications of blockchain technology.

The concept of integrating blockchain technology into the art industry is not untested. Blockchains have already been a part of the physical art world for a few years now as a reliable way to verify creation and ownership details. The application of a trustworthy system of verification like the blockchain to artworks makes perfect sense.

A number of companies are actually already authenticating artwork with blockchain technology, including Verisart in Los Angeles, Tagsmart in London and Ascribe in Berlin. For both collectors and artists, they provide digital certificates of authenticity and provenance records that enable buyers to verify the authenticity of the artwork they purchase while creating an accredited ownership history for the artwork over time.

What blockchain technology provides is its unmodifiable digital ledger which logs every single digital transaction. More importantly, this ledger is public so everyone can see its history. This means, for example, that you can see that the painting you are interested in has been purchased three times from buyers in London, Madrid and Milan. Because the log is decentralized and cannot be edited, there is no potential for lies or trickery — no one can sell you a fake copy if a digital record of the authentic piece exists.

By allowing records like provenance, authorship and ownership to be unmodifiable, blockchain technology potentially solves the issue of forgeries and thefts in the art world. According to the FBI, billions of dollars worth of art and cultural property go missing every year. Being able to prove and track the ownership of artwork could make it almost impossible to resell stolen artwork in the future.

By increasing trust in the art world, blockchain technology could also help increase the value of art. One important factor in art is scarcity — it is what drives demand. People covet beautiful things: the more unique, the better. The Mona Lisa wouldn’t likely be worth $2 billion if there were 10 originals on the market.

Blockchain technology may pave the way for a robust new market of digital art.

The digital art and design world is arguably just as bad — or worse. While individuals can easily download a music file from a file-sharing website, it is even easier to screenshot or share digital art without any attribution or financial benefit for the artist. As long as people don’t consider digital assets “objects,” digital artists won’t be paid what their work is worth. However, being able to certify the ownership of digital assets through the blockchain could assure the value of digital art and change the behavior that it is okay to swipe art from the web without a thought. People already consume all kinds of creative content on digital screens, be it books, movies, media, or music. The time has come for them to value digital art they can appreciate just as thoroughly on their devices.

A new generation of blockchain-based art collections is bringing the digital art and cryptocurrency worlds together.

For many people, a painting on the wall is worth money; but a digital work of art online has no financial value. A new business model, however, is now emerging for digital art that could alter this perspective.

CryptoPunks by Larva Labs is one known example. The company has created 10,000 computer-generated digital characters, each one unique, with proof of ownership stored on the Ethereum blockchain. Each one is owned by a single person and verified by a smart contract. As the blockchain data is public, you can see exactly which of the characters have been purchased and which remain available. Some people have spent 10 ETH (around $3,000) on the rarest types of CryptoPunks on the secondary market.

This is just the tip of the creative iceberg. Imagine the possibilities with digital art created by actual artists becoming desirable and more valuable. In addition, artists who otherwise would have been forced to use a large-scale centralized company to distribute their work are now able to distribute their work in a decentralized way and receive fair compensation.

Soon, people may begin collecting digital art in the very same way they collect it in its physical form. This may also require a cultural shift in the perception of digital art and its value, but this cultural shift could well be instigated by applying technology, thereby adding financial value and scarcity to digital art. This may well turn out to be a significant boon in the lives of artists all over the world who will be able to profit and take control of their creative output and their intellectual property in a dynamic, budding market.

ICOs (Initial Coin Offerings) or token sales have seen a dramatic increase over the past year as a method for raising capital. According to CoinMarketCap, Bitcoin market capitalization sits at around $70 billion at the time of writing (even after the China ICO market correction), up from $11 billion in June 2016. Overall, the cryptocurrency market cap is now over $150 billion, roughly the size of Algeria or Iraq’s GDP.

Many organizations have, therefore, become interested in using token sales (aka ICOs and token generation events) as a way of raising capital. Mostly, companies look at token sales as a way to raise startup capital; they issue “utility tokens” to avoid being classified as a security. This method is in line with traditional “crowdfunding” that companies have been doing for many years.

I also believe there is a lot of pent up demand from traditional asset classes and established companies to utilize the blockchain to raise capital and conduct their business. This is because there are a many benefits for both the issuer and the investor.

For the issuer, it’s a frictionless process of raising capital that opens up a global market of potential investors. Costs of raising capital via this process can be a fraction of what it may cost to address the same size market with a traditional raise.

For the investor, it provides access to a wider range of investment opportunities, which a regular person may never otherwise have access to. Typically, there are zero or very low investment minimums, and one can easily participate in a token sale anywhere on the globe — just set up a wallet, buy some bitcoin or ether, and get in on time. As a bonus, there’s also often the existence of a secondary market where tokens can be traded after the initial token sale, thus providing fast liquidity to those that desire it.

However, the process is not without its challenges, and there are several things to consider when launching your next fund offering on the blockchain.

What are traditional asset classes and why may a blockchain be of benefit to them?

Traditional asset classes are those that generally come up when people talk about investments. They include stocks, commodities, real estate, private equity funds and derivatives, VC funds, REITs and others.

Most, if not all, traditional assets would fall under the SEC’s definition of a security, as stipulated by the Howey test. However, due to the decentralized nature of blockchains, the U.S. is not the only jurisdiction where tokens can be sold from; many countries around the world such as Switzerland, Cayman Islands, Estonia and others are stepping up to welcome ICOs, be they utilities or a securities.

So, how is blockchain technology and tokenization beneficial to traditional asset classes? Consider this example based on the logic illustrated by Stephen McKeon. If we take real estate as an example, it’s estimated that the size of commercial real estate in the U.S. alone is about $11 trillion. Let’s say 10 percent of that can be tokenized; that immediately puts over $1 trillion of liquidity back into the marketplace and removes an “illiquidity premium” which issuers are forced to pay because investors have no way to exit their investment for a number of years. This is a win-win for both the issuer and the investor.

Challenge #1 – Jurisdiction

Even if one decides to tokenize an existing asset, there are several challenges that must be addressed, and finding the right home for your fund is key. Since most traditional assets may be considered a security, finding the right jurisdiction will be very important during and immediately following your token generating event. Let’s take a look at some of the options available to us today.

The State of Delaware has a newly invoked law that will allow businesses to maintain shareholder lists and other corporate records on the blockchain. This move is even more significant when you consider that this jurisdiction is the corporate domicile capital of America, with 66% of Fortune 500 companies calling it home. If your plan is to make token holders Limited Partners or equity holders of your new fund, this may be a reasonable option.

Also in the U.S., Regulation A, Regulation A+ and Regulation D contain rules that could exempt entities selling securities from registering with the SEC, including a specific look at equity crowdfunding. These rules can be applied to any crowd sale, and potentially encompass token sales as well. It’s also possible to raise under Regulation S, which would exclude U.S. investors altogether, thereby removing the need for protection of unaccredited investors.

Switzerland, one of the leading centers of capital in Europe and known for recently abolishing its banking secrecy laws, has become a fintech hub and is considered a friendly jurisdiction. A number of leading Swiss companies have formed an alliance called Crypto Valley, where one of the most prominent law firms, MME, hosted a recent conversation about the legalities of token sales and what may constitute a security under Swiss law.

The Cayman Islands, a leading offshore jurisdiction with a 0 percent tax rate for foreign-controlled companies, have seen an uptick in ICOs lately. Recent token sales events from the Caymans include EOS, Domain Developers Fund and others. The Cayman Islands and other offshore jurisdictions have taken a friendly view on blockchain assets and have the service provider infrastructure in place, with lots of experience creating and operating traditional funds. I believe incorporating in the Caymans and other offshore jurisdictions have many benefits and is a practice that will continue to increase.

Estonia is another interesting example of a jurisdiction where several ICOs — which would almost certainly be considered securities in the U.S. — have been domiciled. Recently, Agrello, Polybius and a number of other companies completed successful token sales. Estonia is unique because of its e-government initiatives, which encompass e-citizenship, e-voting, e-tax and government blockchains. Further, Estonia recently announced its own cryptocurrency called Estcoin. Estonia currently doesn’t regulate crowdfunding (though some EU laws may apply) and is one of the top friendly jurisdictions for launching tokenized funds.

Challenge #2 – Knowing Your Customer

Another roadblock to conducting legal and compliant token sales is the issuer’s ability to follow KYC and AML regulations effectively. KYC (Know Your Customer) is the method in which issuers verify the identity of its investors. Many cryptocurrencies of choice for token generation events have anonymity features built in (cryptocurrencies such as Monero and Zcash are prime examples, and bitcoin can be anonymized as well). Further, the crypto investment community likes the idea of not having to go through lengthy and intrusive KYC processes. This practice doesn’t bode well for the issuer, however, since KYC is a key requirement for many banks. Strong KYC during the token generating event will make it easier to work with banks and follow AML (Anti Money Laundering) regulations.

Challenge #3 – Tax, Compliance and Custody

There are further complications with taxes, compliance and custody. There are not yet clear standards for cryptocurrency compliance to be followed. Further, if your fund is going to be holding crypto-assets and cryptocurrencies, security and custody needs to be considered. Luckily, there are some players such as Gemini that offer crypto-custody services; some reputable banks such as the Swiss Falcon Private Bank are also starting to offer bank-level cryptocurrency trading services. There are still more challenges around custody and compliance for altcoins.

On the tax side, there are open questions about treatment of virtual currencies. IRS guidance 2014-12 classifies cryptocurrencies as an asset class, imposing capital gains taxes on profits in certain situations. Some other countries such as Vietnam have proposed making digital currencies like bitcoin a form of currency. The world tax authorities still need more time to figure out how to tax this new asset class.

Challenge #4 – What Happens Next?

Once you’ve jumped through a lot of hoops and successfully executed a tokenization event for your fund, the real work starts. If you accepted U.S. investors, think about how you can prevent them from selling your tokens in the first 12 months (if you raised under Regulation D). If you didn’t accept U.S. investors, how do you prevent them from buying your tokens in the future? What exchanges do you want to list on to make sure you can comply with AML and other regulations? This is a complex process that needs to be thought of before you start planning your token generation event.

Looking to the Past

Launching a tokenized fund on the blockchain is a relatively new concept; however, we have some successful precedents. The biggest and most interesting example is Blockchain Capital, founded by Brock Pierce. Their token, BCAP, was sold under Regulation D exemption to 99 accredited U.S. investors (and unlimited foreign investors with many exceptions), who, per SEC regulation, can’t sell their tokens for 12 months. Blockchain Capital has a complex structure, with entities in Singapore, the Cayman Islands and the U.S. According to their memorandum, they spent up to 10 percent of their raise on legal expenses (they raised $10 million), which is a hefty sum. Also, questions remain: What prevents non-accredited U.S. investors from buying BCAP tokens post ICO? How are the 99 accredited investors forced to comply with the requirement to hold these tokens for the time allotted?

Conclusion

Launching token generation events for your fund can be a worthwhile activity, but you need to plan carefully and entrust your process to qualified professionals.

Some things to think about before going ahead with launching a tokenized fund:

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